• GBP/JPY weakens from a two-week-old falling trend-line.
  • 61.8% Fibonacci retracement triggered the pair’s bounce last week.
  • 21-day EMA, three-month-old resistance-turned-support adds to the support.

Having reversed from eight-day highs, GBP/JPY declines to 139.71 during Friday’s Asian session.

The pair now seems to revisit 61.8% Fibonacci retracement of May-August south-run, at 138.91, while a confluence of 21-day Exponential Moving Average (EMA) and an upward sloping trend line since July-end, around 138.15/25, could restrict pair’s additional weakness.

In a case where sellers dominate below 138.15, July month high near to 137.80 might offer an intermediate halt to pair’s drop towards 50% Fibonacci retracement of 136.55.

On the contrary, pair’s rise beyond two-week-old resistance line, at 140.63 now, can take aim at the previous month high around 141.51 and May-end low close to 141.74 ahead of pushing bulls towards late-April bottoms close to 143.75.

GBP/JPY daily chart

Trend: pullback expected

Japanese Finance Minister Taro Aso has said that they are "not considering need to compile economic stimulus measures now," – according to Reuters.

Further comments

  • No instruction from Prime Minister Shinzo Abe on economic stimulus measures.
  • No need now to compile stimulus measures to support the economy.

More to come …

  • GBP/USD awaits early-month data from the US/UK to extend the latest rise beyond eight-day high.
  • UK political plays seem to favor the PM Johnson while Brexit headlines are a few.
  • Greenback bears catch a breath after heaviest monthly declines since January 2018.

With the last month proved to be the worst for the US Dollar Index (DXY) since January 2018, greenback traders await month-start catalysts for fresh directions. In doing so, the GBP/USD pair, which rallied to the highest since October 22 the previous day, consolidates recent gains to 1.2930 by the press time of the Asian session on Friday.

The US Dollar (USD) dropped across the board on Thursday as the Federal Reserve’s third back-to-back rate cut and receding odds of any strong trade ties between the United States (US) and China joined mixed data from the US.

The British Pound (GBP), on the other hand, benefited from increasing odds of the United Kingdom’s (UK) present Prime Minister (PM) Boris Johnson to hold on to his position after a general election in December. Also increasing the pair’s strength were expectations that the UK PM has strong ties with the US and can be relied upon for good trade relations in future.

During early-day, investors stop extending the previous momentum as the month-start data flow is yet to begin while risk aversion stands tall amid the US announcing fresh sanctions on Iran and North Korea’s another round of test-firing.

Among the statistics, October month Market Manufacturing Purchasing Manager Index (PMI) from the UK and employment stats, ISM Manufacturing PMI from the US will be the key to watch. About the UK data, TD securities say, “We look for the manufacturing PMI to rise from 48.3 to 48.9 in October (mkt 48.2), supported by inventory building ahead of the (at the time of the survey) Brexit deadline of 31 October. Details will likely to continue to be soft as uncertainty drags on, and we'll be watching particularly closely to see if the labor market weakness that was highlighted in September continues into October.”

Westpac has a different story, concerning the US Nonfarm Payrolls (NFP), “US Oct non-farm payrolls are expected to increase by 85k with the General Motors strike and reduction in census workers both a drag on headline employment gains. The unemployment rate is seen to edge back up to 3.6% from a 50 year low 3.5%, and average hourly earnings growth is anticipated to stabilize at 3.0%yr after Sep’s abrupt fall to 2.9%yr from 3.2%yr in Aug.”

Technical Analysis

While 1.3000 and the previous month high around 1.3015 hold the key to pair’s rise towards May month top surrounding 1.3180, pair’s declines below June top close to 1.2780 could trigger a fresh downside.

  • Trade war headlines rock the apple cart and weigh on the Aussie.
  • AUD/NZD drops to 200-hour moving average with eyes on a 61.8% Fibonacci retracement.

AUD/NZD has been weeker into month-end, falling from the 1.08 handle to 1.0740 and meting the 200-hour moving average which has acted as a robust level of support. Overnight, trade headlines soured the mood and weighed on the Australian Dollar. Headlines stated that Chinese officials were casting doubts over reaching a comprehensive long-term trade deal with the US. Chilean President Sebastian Pinera dropped a spanner into the works when he announced Wednesday that the country had cancelled the Asia-Pacific Economic Cooperation summit Nov. 16-17.

Trade war headlines turning sour again

The consensus was that Trump and Xi-Jinping would still ink a deal together, at some stage and somewhere, but today's feelings have shifted somewhat. Bloomberg reported, citing “Chinese officials”, that US-China trade negotiations beyond Phase 1 were unlikely to progress without current tariffs being removed, making for a risk-off month-end – Also, weaker China ISM added to the sense of unease and consequently, AUD/USD slipped from 0.6920 to 0.6890 and the cross has bared some of the brunt of it.

What makes matters worse, is that, fo far, and as reported by Bloomberg, "U.S. Trade Representative Robert Lighthizer and his team, which declined to comment, have been adamant that the duties on $250 billion in Chinese goods — imposed early in the trade war — be maintained over the long term as a way to enforce any commitments China makes."

AUD/NZD levels

The bears are in the driving seat at this juncture and a break of the 200-HMA opens risk towards a 61.8% Fibonacci retracement at 1.0725. On the upside, 1.0790 guards the recent tops in the 1.0820s.

  • AUD/JPY reverses from three-month high, drops below the near-term key support line.
  • 21-day EMA seems to be the immediate rest-point, multiple resistances stand tall to challenge the buyers, if any.

Following its U-turn from late-July tops, AUD/JPY declines below the three-week-old rising support line while flashing 74.42 as a quote during Friday’s initial Asian session.

Prices are likely aiming for a 21-day Exponential Moving Average (EMA) level of 74.00 whereas 61.8% Fibonacci retracement of July-August downpour, at 73.89, could question sellers next.

In a case where the bears refrain from respecting 73.89, October-start high near 73.35 and 50% Fibonacci retracement level of 73.15 could entertain them ahead of an upward sloping trend line since late-August, at 72.71.

Meanwhile, pair’s run-up beyond 75.13/20 area, including early-July lows to late-month highs, may find multiple upside stops around 75.50 and 76.00.

During the pair’s rise past-76.00, 76.30 and 77.00 will be on the bull’s radar.

AUD/JPY daily chart

Trend: pullback expected

In an additional blow to the Middle East giant, the United States (US) Secretary of State Pompeo recently announced further sanctions, this time concerning Iran’s construction sector and missile program, to curb the oil-rich nation’s nuclear program.

FX implications

With the news showing increased tensions between the US and the Middle East, which is the major Oil resource, safe-havens like the Japanese Yen (JPY) and Gold, coupled with the Oil prices, are likely to remain positive.